Monday, January 21, 2013

Paper value of a car

A recent search for a car by a friend of mine sets me thinking about the effect of paper value of a car and the value of the car itself.

For those who do not know what paper value is all about, it is simply the amount the authorities will pay you if your car is deregistered before it is 10 years old. Anything more that that means the car value is only its body value, which the car dealers will pay for.

There are 3 factors that determines the paper value of your car:-

COE
ARF
Body

1. COE

It adds up to the value of car as longs the car is not more than 10 years old because by then the value is $0. The formula is simple

COE x number of years left/10

So if you either sell or deregister your car say in 5 years, the value of your COE is then 1/2 of what you paid. This amount adds up to the paper value of your car. In this instance, the higher your COE value, the more the paper value is

2. ARF

This is the registration fee aka tax you pay for you car. Depending on when the car was registered, the ARF can vary. At the end of 10 years, the authorities will pay you a certain amount to compensate for your loss, called the PARF

Same rules here. The longer you use the car, the less the PARF. This link has details on what your PARF formula is.

This depends on what type of car it is. Normally, the more expensive the car is, the more body value it has.

So when you buy plan to buy a car with higher COE and ARF, regardless if it is new or 2nd hand, it will mean the returns you'll get will be higher. That sound good right?

But for those who do not know, the depreciation value is tight directly to the two of them. Depreciation value is the amount of money you'll lose every year. So higher COE and ARF means higher depreciation value.

So forget about the COE and ARF when you buy a car. Take note of the depreciation value instead because at the end of it all, that is what you stand to lose.